What If Warsh Shocks The Market And Keeps Rates On Hold
Markets are weighing a possible Federal Reserve decision to hold rates steady at today's FOMC announcement, despite expectations for a hike under Kevin Warsh. That would challenge the prevailing inflation-and-rates narrative, with tariff inflation reportedly fading and a planned PCE methodology change expected to lower the year-over-year reading by about 0.3%.
The ZeroHedge commentary says the Federal Reserve could keep rates on hold at the FOMC announcement scheduled for 2 p.m. today, contrary to what it describes as the prevailing expectation of a hike under Chair Kevin Warsh. It argues that tariff-related inflation is fading and that supply shocks linked to the Iran war are not readily addressable through monetary policy.
The article also points to an upcoming change in the methodology used to calculate personal consumption expenditures inflation. It says the adjustment could trim the year-over-year reading by about 0.3%, potentially making the inflation backdrop look materially softer than under the current methodology.
Goldman Sachs and others are cited as having questioned the case for a hike, according to ZeroHedge. The article frames the decision as a conflict between responding to recent supply-driven price pressure and recognizing that core inflation is at its lowest level in years, but it does not establish the final policy outcome.
The key unresolved point is the Fed's decision and accompanying communication at the scheduled announcement. The statement, Warsh's rationale and the updated rate path will determine whether markets treat a hold as a signal that policymakers see the inflation shock as temporary or as a pause before further tightening.
GS has a mixed macro read: a rate hold would ease tightening pressure, but persistent inflation risk could keep financial conditions restrictive.
The immediate implication for GS is two-sided: a hold could reduce the risk of an abrupt tightening shock for capital markets, while a hike would reinforce a higher-for-longer backdrop that can weigh on activity and valuations. The decision and Warsh's accompanying guidance are more important than the single rate move because they will clarify whether policymakers view the inflation pressure as temporary supply noise or a persistent policy problem.
A surprise hike or hawkish guidance despite the reported cooling in tariff inflation would leave financial conditions tighter and could pressure Goldman Sachs through weaker market activity and valuations.
CoverageSource: ZeroHedge · Published here WED, SEP 16 · 11:25 AM ET · the only report in this recordHow this is decided →
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A hold would remove an immediate tightening surprise and could support the market activity that underpins GS's $58.3B of FY2025 revenue.
The bearish case is that the Fed still hikes because inflation risks remain elevated, extending restrictive financial conditions even if the reported PCE methodology change lowers the year-over-year reading by about 0.3%.
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